Fed’s Beige Book: Modest expansion, Tight labor markets

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of Boston based on information collected on or before January 9, 2017."
Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand at a modest pace across most regions from late November through the end of the year. Manufacturers in most Districts reported increased sales with several citing a turnaround versus earlier in 2016. Growth in the energy industry was mixed; two Districts reported weakness in coal production but others reported improvements in coal, oil, or gas activity. Most Districts said that non-auto retail sales had expanded, but several noted that sales over the holiday season were disappointing and reports in more than one District suggested that growth in e-commerce had come at the expense of bricks-and-mortar retailers. All Districts reported varying degrees of growth in employment and a majority described their labor markets as tight. Residential construction and sales were generally mixed, although San Francisco reported strong real estate market activity throughout the 12th District. Financial conditions were stable. Firms across the country and industries were said to be optimistic about growth in 2017.
emphasis added
And on residential real estate for Boston:
Continuing recent trends, residential real estate markets in the First District showed robust increases in sales and prices relative to last year. ... Home prices also rose year-over-year. For single-family homes, the median sales price increased in every reporting region. ... Overall, contacts were optimistic about the outlook for the end of the year and into 2017.
Real estate is solid.

To Find the Cause of the Crisis, Answer These Questions!

Sometimes, when you lose a debate, you have to just let it go. That seems to be a problem for those who are unwilling to accept the complex realities of what actually caused the financial crisis. I have been saying for a long time that many elements contributed to the global financial meltdown. From ultralow…

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The post To Find the Cause of the Crisis, Answer These Questions! appeared first on The Big Picture.

Key Measures Show Inflation close to 2% in December

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.5% annualized rate) in December. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.5% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.3% (3.4% annualized rate) in December. The CPI less food and energy rose 0.2% (2.8% annualized rate) on a seasonally adjusted basis.
Note: The Cleveland Fed released the median CPI details for December here. Motor fuel was up 42% annualized in December.

Inflation Measures Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.6%, the trimmed-mean CPI rose 2.2%, and the CPI less food and energy rose 2.2%. Core PCE is for November and increased 1.7% year-over-year.

On a monthly basis, median CPI was at 2.5% annualized, trimmed-mean CPI was at 2.5% annualized, and core CPI was at 2.8% annualized.

Using these measures, inflation has generally been moving up, and most of these measures are above the Fed's 2% target (Core PCE is still below).

AIA: Architecture Billings Index increased in December

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architecture Billings Index ends year on positive note
The Architecture Billings Index (ABI) concluded the year in positive terrain, with the December reading capping off three straight months of growth in design billings. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the December ABI score was 55.9, up sharply from 50.6 in the previous month. This score reflects the largest increase in design services in 2016 (any score above 50 indicates an increase in billings). The new projects inquiry index was 57.2, down from a reading of 59.5 the previous month.

“The sharp upturn in design activity as we wind down the year is certainly encouraging. This bodes well for the design and construction sector as we enter the new year”,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “However, December is an atypical month for interpreting trends, so the coming months will tell us a lot more about conditions that the industry is likely to see in 2017.”  
...
• Regional averages: Midwest (54.4), Northeast (54.0), South (53.8), West (48.8)

• Sector index breakdown: commercial / industrial (54.3), institutional (53.3), mixed practice (51.9), multi-family residential (50.6)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 55.9 in December, up from 50.6 in November. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 9 of the last 12 months, suggesting a further increase in CRE investment in 2017.

NAHB: Builder Confidence decreased to 67 in January

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 67 in January, down from 69 in December. Any number above 50 indicates that more builders view sales conditions as good than poor.

From CNBC: Homebuilder confidence pulls back by 2 points in January after election euphoria
A monthly sentiment index retreated 2 points in January, and December's seven-point jump was revised down by one. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) now stands at 67.
...
"NAHB expects solid 10 percent growth in single-family construction in 2017, adding to the gains of 2016," said NAHB Chief Economist Robert Dietz. "Concerns going into the year include rising mortgage interest rates as well as a lack of lots and access to labor."

Regionally, on a three-month moving average, sentiment in the Northeast rose two points to 52 and rose three point in the Midwest to 64. The South and West each held steady at 67 and 79, respectively.
emphasis added
NAHB HMI Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was below the consensus forecast of 69, but still another solid reading.

Industrial Production increased 0.8% in December

From the Fed: Industrial production and Capacity Utilization
Industrial production rose 0.8 percent in December after falling 0.7 percent in November. For the fourth quarter as a whole, the index slipped 0.6 percent at an annual rate. In December, manufacturing output moved up 0.2 percent and mining output was unchanged. The index for utilities jumped 6.6 percent, largely because of a return to more normal temperatures following unseasonably warm weather in November; the gain last month was the largest since December 1989. At 104.6 percent of its 2012 average, total industrial production in December was 0.5 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.6 percentage point in December to 75.5 percent, a rate that is 4.5 percentage points below its long-run (1972–2015) average.
emphasis added
Capacity Utilization Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 8.8 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 75.5% is 4.5% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

Industrial Production The second graph shows industrial production since 1967.

Industrial production increased in December to 104.6. This is 19.7% above the recession low, and is close to the pre-recession peak.

This was above expectations of a 0.6% increase.
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